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Tiffany & Co
Hermes International SCA (RMS), the French maker of Kelly bags and silk scarves, will resist raising prices significantly in 2013 even as profitability may decline as the Japanese yen weakens against the euro.
While there may be some minor adjustments, “there won’t be a big movement” in the amount the Paris-based company charges customers, Chief Executive Patrick Thomas said today as Hermes reported record profitability for 2012.
Hermes is an outlier in a sector where several companies have lifted prices in reaction to the yen’s devaluation. LVMH Moet Hennessy Louis Vuitton SA (MC), which owns 22.3 percent of Hermes, in February increased some prices at its Louis Vuitton brand in Japan by an average 12 percent, the most ever at the unit in the country. Jewelers Tiffany & Co. (TIF) and Harry Winston have said they plan to follow suit.
For 2013, Hermes is hedged at $1.28 per euro and 104.5 yen per euro, Finance Director Lionel Martin-Guinard said today at a presentation in Paris. That compares with $1.41 per euro and 112 yen per euro in 2012, he said.
Operating profit as a percentage of sales will probably narrow in 2013 because of currency fluctuations after the weaker euro helped boost last year’s margin to a record 32.1 percent, Thomas said. Earnings should rise this year, he said. Hermes makes the bulk of its products in Europe.
Separately, Hermes has found “damning facts” relating to how LVMH amassed a stake in its rival via equity swaps, Thomas said. Hermes filed a civil complaint last year against LVMH that its bigger competitor rejected as baseless. The outcome of a separate French market authority investigation is expected in the summer.
The CEO also called for LVMH to reduce its stake in Hermes to increase the number of shares on the open market.
Hermes rose 0.9 percent to 259.30 euros at 1:45 p.m. in Paris. The stock has gained 15 percent this year.
The saddle maker is aiming for sales growth of about 10 percent in 2013, Thomas said, adding that “too many unpredictable factors” called for prudence. Since the start of the year, business has been good, with the only change being slightly weaker sales in January because of the later timing of Chinese new year, the CEO said.
Operating profit rose 26 percent to 1.12 billion euros ($1.45 billion) in 2012, Hermes said earlier in a statement. Analysts predicted profit of 1.09 billion euros, according to the average of 15 estimates compiled by Bloomberg.
The better-than-expected profit “once again demonstrates the positive momentum for Hermes and for other high-end niche brands,” said Luca Solca, an analyst at Exane BNP Paribas. “The limit for Hermes is their manufacturing capacity in leather goods. Given the bottleneck there, one could have expected higher price increases than anticipated.”
Hermes proposed raising its full-year regular dividend to 2.50 euros a share from 2 euros last year. The company already paid a 1.50 euro interim dividend and will pay the remainder later. Last year, Hermes also paid a bonus dividend of 5 euros a share.
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